Massachusetts State Lottery Commission 60 Columbian Street Braintree, Massachusetts 02184-1738 Tel: (781) 849-5555 Fax: (781) 849-5546 TTY: (781) 849-5678

DATE:

Tuesday, November 29, 2016

TIME:

10:30 a.m.

MEMBERS PRESENT:

James MacDonald, First Deputy Treasurer Meghan Liddy, Commissioner Anthony Salvidio, Esquire, Commissioner Jeffrey Shapiro, Esquire, Deputy Comptroller, Chief Operating Officer, designee of Commissioner Thomas Shack, III Doug Levine, Special Counsel, Executive Office of Public Safety and Security, designee of Commissioner Daniel Bennett

ALSO PRESENT:

Michael Sweeney, Executive Director, Lottery Edward Farley, Chief Administrative Officer, Lottery Carol-Ann Fraser, General Counsel, Lottery Matthew DiFrancesco, Assistant Executive Director of Operations, Lottery Christian Teja, Director of Communications, Lottery Judy Moore, Executive Assistant, Lottery Chandra Allard, Communications Director, Treasury Sarah Kim, General Counsel, Treasury Brittany E. McCleskey, Assistant General Counsel, Office of the Comptroller Steve Moore, Deputy Legislative Director, Treasury Nick Bontaites, Connelly Partners Emma Roehlke, Connelly Partners Anna-Ruth Watts, Connelly Partners Hillary Williams, Connelly Partners Michael Demakos, Account Coordinator, O’Neill and Associates Andy Metzger, State House News Service Robert Frasca, interested member of the public

I.

Opening of the Meeting: First Deputy Treasurer MacDonald opened the meeting at 10:30 a.m. First Deputy Treasurer MacDonald announced that, while a matter had been identified on the meeting agenda for Executive Session, the Executive Session matter has been withdrawn. There will be no Executive Session.

II.

Approval of Minutes from October 25, 2016 First Deputy Treasurer James MacDonald asked the Commission to accept the minutes of the meeting of October 25, 2016. Commissioner Liddy moved to accept the minutes of the meeting, and Commissioner Salvidio seconded the motion. The minutes were approved at 10:31 a.m.

III.

Executive Director’s Report a. Sales Update b. Marketing Update Executive Director Sweeney reviewed Lottery sales for October, announcing overall sales for October of 2016 were up $897,358 from October 2015. Executive Director Sweeney explained, due to a shift in the calendar which resulted in seven fewer days included in the net profit figure for October 2016, net profit for the month was $87.2 million compared to $106.5 million in October 2015. After adding a seven day average net profit figure of $21.8 million, the adjusted change for October 2016 vs. October 2015 was a $2.5 million increase in net profit. The prize payout for October 2016 was 68.84 percent, as compared to 70.33 percent in October 2015. Executive Director Sweeney explained that, due in part to the absence of last fiscal year’s accrual related to the $20 million end of game Mega Cash prize, the year-to-date prize payout for the first four months of FY17 is currently at 71.95 percent, as compared to 73.93 percent for the first four months of FY16. Executive Director Sweeney reported that the year-to-date net profit for the first four months of FY17 is $344.3 million compared to $319.1 million for the first four months of FY16. After adding a two day average net profit figure of $5.7 million, due to a shift in the calendar that resulted in two fewer days being included in the net profit figure for the first four months of FY17, the adjusted year-over-year change for the first four months of FY17 versus the first four months of FY16 is $30.9 million increase in net profit. Executive Director Sweeney reported that KENO, Powerball, Mass Cash and the Numbers Game all experienced sales increases in October of 2016 over October of last year. KENO sales were up $697,849, Powerball sales were up $690,606, Mass Cash sales were up $91,459 and Numbers Game sales were up $42,004. Sales of the ALL OR NOTHING monitor game, which launched on July 18th, totaled over $1.3 million for the month of October.

Mega Millions sales were down $1.3 million in October of 2016 compared to October of 2015, Instant Ticket sales were down $248,826, Lucky for Life sales were down $118,356 and Megabucks Doubler sales were down $109,380. Executive Director Sweeney followed up by providing additional details on each game across the Lottery’s portfolio for the month. He reported that the trend line with Instant Ticket sales continues to be similar to prior years, leaning just below the total Instant Tickets sales for October of last year. KENO sales continue to be strong, and experienced a good month. ALL OR NOTHING monthly sales continue to adjust down, as predicted. Executive Director Sweeney mentioned that the Lottery ran a promotion that concluded Thanksgiving weekend and he expected to see some potential increases during that November timeframe. All games monthly sales were, for the most part, flat, with sales trending a little bit above this time last year. Executive Director Sweeney’s concern was the huge influx of revenue that was seen from Powerball during the enormous jackpot run up in January of 2016. It is his opinion that, if we don’t see a similar Powerball run, there’s a potential that the negative number will continue to increase as we move forward in this fiscal year. Monthly Net Profit Executive Director Sweeney continued the discussion by including a new chart outlining the monthly net profit from November 2013 through to October 2016. He mentioned that the Lottery receives a lot of inquiries from the State House, the Comptroller’s office and occasionally the media, asking where the profit is for that particular month and where is it projected to be in the future months. He explained that the numbers, historically, from month to month, over the years, can jump depending upon the games that have been launched along with how and when players are cashing in their tickets and a variety of other factors, including weather and store closures. For that reason, it is difficult to make an adjustment on a monthly basis and the Lottery strives to be consistent with the numbers until there is enough data to make an adjustment. Five Year Comparison Chart Executive Director Sweeney went on to discuss the five year comparison chart, which is a key chart showing the highest payout as a percentage of the Lottery’s sales from the last five years. He reported that prize payout is currently at 71.9% which is trending below last year which was at 73.9%. He stated this number is expected to increase next fiscal year with the Lottery likely to have a significant accrual payout for an end of game situation, as was experienced last year.

Gross Sales Results Referring to the Gross Sales Results chart, October FY17 vs. FY16 Unadjusted Non-Fiscal Year, Executive Director Sweeney reported that, despite Instant Tickets sales trending down slightly at -0.1%, and Mega Millions sales down significantly at -29.2%, overall, it was a good month. Executive Director Sweeney feels that the Lottery was successful in strengthening some of the games, such as KENO and ALL OR NOTHING. A strategy, which was embarked on over a year ago, is paying dividends by bringing in just enough extra revenue that is offsetting some of the pull back that Instant Ticket sales are experiencing. He concluded that the numbers are essentially flat with total growth for the month, year over year at, 0.2%.

Executive Director Sweeney reported that the Gross Sales Results chart Year-to-Date FY17 vs. FY16 Unadjusted Non Fiscal Year were down -01%. Instant Ticket Sales down 2.5%, which is a trend that is being seen across the country. KENO sales were down marginally at -0.1% but was offset by the $10.8 million in sales generated from ALL OR NOTHING. Plainridge Park Casino – Lottery Sales Executive Director Sweeney mentioned that at the most recent Gaming Commission meeting, Plainridge reported on their relationship with the Massachusetts State Lottery. Executive Directory Sweeney introduced a chart to share the information from the report with the Commission. He explained that, Plainridge Park Casino currently has five instant ticket vending machines and four Lottery terminals on site. Sales have been very strong, the Lottery has a good working relationship with the casino and the Lottery hopes to establish the same relationship with other casinos that open up. Commissioner Salvidio asked about Lottery sales sold at locations within the area of the casino. Executive Director Sweeney explained that a lot of the efforts that Treasurer Goldberg began before the opening of Plainridge, made a difference. She made it a priority to maintain relationships and to have a lot of interaction with Plainridge and the retailers in the immediate areas surrounding Plainridge. The Lottery continues to develop and maintain those relationships. Executive Director Sweeney reported that the Lottery works closely with UMass and the Gaming Commission, whose mission is to study the impact that casinos have on the Lottery and is in agreement that the numbers do not point to any type of clear deficit that can be tied back to Plainridge. There is a little bit of a divide in the immediate community area with some doing better and some experiencing lower sales but overall, the statistical difference is insignificant. He concluded that overall, sales across the state have grown in the areas surrounding Plainridge. Cash Carrying Executive Director Sweeney moved on to discuss a finding done in early September by the Rockefeller Institute in New York. Executive Director Sweeney was contacted by the institute regarding a study concerning the proliferation of casinos throughout the country and how casinos in states adjacent and sometimes within a state, can sometime lead to a decrease in state revenue. This naturally, has an impact on the long-term budgetary planning for these states and a small part of that study looked at the potential impact that new gaming venues have on lottery. During the conversation, Executive Director Sweeney shared with the Commission that he had been invited by the Institute and accepted the invite to present on the issues of why lottery sales in Massachusetts and across the country have been flat. Executive Director Sweeney believes that lotteries have not been fully responsive to the changing technologies and the changing ways that people engage in commerce. The lottery is a cash dependent business and, regardless of demographics or age, people do not carry as much cash as they did ten years ago and some don’t carry cash, at all. How this impacts lottery sales is obvious and locks operations like the Massachusetts State Lottery, out of potential business. Executive Director Sweeney showed examples of the types of non-cash payments and described how they have evolved and grown within the last seven years. Instant Tickets Chief Administrative Officer Edward Farley provided a sales update on the Holiday Instant Tickets, which were released on November 1st. He reported that the sales for the holiday ticket, particularly the $10.00 ticket, has seen an increase over last year’s holiday

sales. Executive Director Sweeney stated there has been a good response from the public and the Lottery has invested a significant amount of available advertising dollars into this campaign. He described it as the most critical campaign done each year by the Lottery. As part of the discussion around the holiday campaign, Executive Director Sweeney informed the Commission that the Lottery will be offering a discount on all Season Ticket purchases through to January 7, 2017. Chief Administrative Officer Edward Farley mentioned that last year, the Lottery was able to promote the holiday campaign using television and radio advertising for Season Ticket discounts, but due to budget decreases, the Lottery was unable to do that this year. Responsible Play, Responsible Gifting Executive Director Sweeney continued the discussion by providing an update on playing responsibly. He stated that, during the holiday season, as people are out shopping for gifts, the Lottery has been working with the Massachusetts Council on Problem Gambling. The Lottery will be promoting responsible play in a number of ways including, producing and posting POS materials that discourages underage play and by including the “800” hotline number for the Massachusetts Council on Problem Gambling. In conjunction with some of those efforts, the Lottery is participating in a holiday toy drive. This year, the Lottery has teamed up with the Treasurer’s office to help get the word out that lottery tickets are not a responsible gift for a child. To promote responsible gifting, the Lottery is supporting Toys for Tots, a program which has been in effect at the Lottery, with the generous help of Lottery employees, for years. The Lottery will be conducting toy drives at the Braintree headquarters as well as at the regional offices. Social Media Messaging Executive Director Sweeney informed the Commission that the Lottery continues to be aggressive with social media. Two examples are: Spooky Cash and conducting live Numbers Game drawings on Facebook Live. He stated that the social media promotions aimed at the Lottery’s 2nd chance app for Monopoly Jackpot tickets continues to do well. Executive Director Sweeney mentioned social media messaging around the Bruins’ On Ice Challenge, the Celtics’ Program “Heroes Among Us” and the Bruins’ “Eight Spoked Salute” to chosen members of the armed forces. Connelly Partners Executive Director Sweeney introduced staff members from the advertising agency which works with the Lottery, Connelly Partners. Connelly Partners, through Hillary Williams, Emma Roehlke, Anna-Ruth Watts and Nick Bontaites shared the details outlining the initiatives being launched for the holiday advertising campaign. Hillary Williams explained that, due to budget cuts this year, efficient production was extremely important. She stated, with the TV spot being their key awareness driver, Connelly Partners extended it across multiple mediums, not only running via TV broadcast but also utilizing spots via online media and outdoor/experiential units. The primary message being promoted is that Lottery tickets are an ideal gift for friends, family, and coworkers over the age of eighteen. They are fun and exciting and can be found at retailers statewide. Connelly Partners concluded by presenting the TV and radio spot supporting the Lottery’s Holiday Campaign. The total budget for the FY17 Holiday Campaign is $1,800,000. Executive Director Sweeney thanked Connelly Partners and the marketing team at the Lottery for their efforts

IV.

Matters Requiring Massachusetts State Lottery Commission Approval Votes Presented to the Commission VOTE (1): First Deputy Treasurer MacDonald asked for a motion to authorize the Executive Director to extend, for a term of up to five (5) years, the current tenancy by MSLC at 700 Longwater Drive, Norwell, Massachusetts. The purpose of this vote is to obtain approval to extend an existing tenancy agreement for the facility in which the MSLC’s present and future back-up gaming system is and will be located, with additional funding associated with necessary improvements to the leased space over the first three years of the extension period. The total maximum obligation assumed hereunder shall be seven hundred and eighteen thousand four hundred and twenty-five dollars ($718,425.00) over a five year period. Executive Director Sweeney explained that this request is for the Lottery to enter into a lease extension on a current location that the Lottery has been leasing since 2001. Assistant Executive Director of Operations, Matt DiFrancesco, who oversees all of the Lottery’s facilities, as well as General Counsel, Carol-Ann Fraser, have worked closely with DCAMM since early August, 2016, and determined that seeking an extension would be the best option. This particular location is provided as a back-up facility for the Lottery’s IT equipment and Operations as well as serving as a disaster recovery area. The location is about 4600 square feet. Currently, the Lottery has been paying $101,970 annually, which is about $22.00 per square foot. The Lottery is requesting a five year extension with the option, after three years, to end the lease. The landlord will provide improvements, which include the replacement of two, 20 ton AC units, a back-up cooling unit in the UPS room, installation of a new fire control panel to monitor the fire suppression system, and electrical modifications. Total improvements provided by the landlord, are estimated at, $200,000.00. The cost would be absorbed during the first three years of the lease. The 22 square foot current price will serve as the backbone for the extension during the first three years, and the $200,000 in improvements would be absorbed by a payment of $37.00 per square foot. During the fourth and fifth year, the lease price per square foot would return to the prior level of $22.00 per square foot. DCAMM vetted this as well as doing the direct negotiations with the landlord. DCAMM is in agreement that this is a matter the Lottery should finalize and approve. The current lease expires January 31, 2017. Commissioner Liddy asked if there was an option to extend beyond the five year term. General Counsel Carol-Ann Fraser stated that the Lottery was able to negotiate up to five years for the lease period. Commissioner Salvidio asked if there was an option beyond the five years. General Counsel Fraser responded, no and this is something that is controlled by DCAMM, whose preference is not to have lengthy lease terms. DCAMM leases generally are for ten years, an initial five year period with a five year option. The Lottery has occupied the property for many years and has extended beyond the initial ten years. The Lottery is asking to extend to another five years. Executive Director Sweeney stated that the Lottery is the tenant user on a number of major leases that are ripe for decisions on renewal. Reviewing and planning will require a significant amount of staff and teamwork by the Lottery and DCAMM. He added that, by stabilizing the Norwell site and not making any technical changes by relocating equipment, particularly at a time where the Lottery is installing the new gaming software, makes sense.

First Deputy Treasurer MacDonald, recognizing there was no further discussion, moved the motion to a vote. For the reasons stated above and in the meeting materials, the Commission voted unanimously in favor of the motion. The motion carried. V.

Other matters related to the purchase of goods and services by the Lottery After asking if there was any other business to discuss, First Deputy Treasurer MacDonald sought a motion to adjourn the meeting. Commissioner Liddy moved to adjourn and Commissioner Salvidio seconded the motion. The motion carried unanimously. The meeting adjourned at 11:18 a.m.